ELY — The Ely Public Schools Board received a sobering warning during its Nov. 24 study session: Without significant changes, the district could find itself in statutory operating debt, triggering state intervention, in the coming years.
Mary Reedy from CliftonLarsonAllen LLP, the district’s auditing firm, presented the findings from the fiscal year 2025 audit, highlighting trends in the district’s financial position. While the district ended the year with a positive fund balance of $1,196,783, this represents only 13.3 percent of annual expenditures. Board policy mandates 20 percent.
“Your unassigned fund balance is pretty low,” Reedy noted during her presentation, pointing to financial charts showing the district’s declining reserves.
Under Minnesota law, school districts enter statutory operating debt when their fund balance falls below negative 2.5 percent of annual expenditures. At that point, state intervention becomes mandatory.
While the district is not currently in statutory operating debt and maintains a positive balance, the fund balance is trending down. The district has been spending down its reserves for multiple years, and without corrective action, could eventually breach the statutory threshold.
“The state will come in and help you with your budgets, and then I believe they will help you either eliminate expenditures or try different things,” Reedy said when asked about the process.
Districts in statutory operating debt must submit a special operating plan to the Minnesota Department of Education by January 31 showing how they will rebuild their fund balance. The state works with districts to develop this plan, but the consequences can be severe.
Difficult choices ahead
The discussion quickly turned to the difficult realities facing the district.
“You have fixed costs with fuel and insurances and electricity,” said Board Member Tony Colarich. “Well, there’s nothing you can really do there. You’re not going to turn off your lights. So it comes down to staff. It’s going to have to be cut. Or the class sizes have to get bigger.”
Reedy acknowledged that other districts she has worked with that faced similar challenges were able to make significant budget cuts, though she noted those were larger districts with more flexibility.
Revenue sources and expenditure breakdown
Reedy’s presentation broke down the district’s revenue sources, showing the heavy reliance on state funding. Property taxes account for just 17 percent of revenues, while unrestricted state aid represents 34 percent—the single largest source. Operating and capital grants make up 43 percent of revenues, with charges for services contributing one percent and all other sources accounting for five percent.
The expenditure breakdown revealed that Direct Instruction consumes the largest portion of the budget, followed by Sites and Buildings maintenance and operations. The presentation noted that the expenditure chart “is a little skewed just because your capital outlay was so large,” referring to ongoing facilities projects.
Debt service costs remained relatively stable year over year, while other categories showed modest changes. The district’s restricted fund balance increased slightly from the prior year, but this was offset by the decline in unassigned fund balance—the portion available for general operations without restrictions.
Mixed enrollment picture
The audit presentation revealed a complex enrollment picture that both helps and hurts the district’s financial position. While overall enrollment declined by about 12 students from 2024 to 500 students in 2025, the district saw increases in secondary enrollment, which brings in additional state funding.
“Your biggest drop there was in elementary, and you increased in kindergarten and others as well,” Reedy said.
The district also saw a slight increase in non-resident students, from 80 to 82, while resident students declined from 472 to 460. The district continues to maintain a net gain from open enrollment, with more students choosing to attend Ely schools than Ely residents opting to attend elsewhere.
Looking ahead
The board acknowledged the difficult work ahead, with Board Member Tom Omerza noting, “It’s a bitter bitter pill to swallow here.”
A finance committee meeting was scheduled for the following month to begin addressing the budget challenges.
“There will be a lot of work ahead for the finance committee and the school,” said Superintendent Anne Oelke. “It’s unfortunate right now.”